Every so often a discussion erupts on whether AWS is disrupting VMware, Oracle, IBM and HP or not. Quarterly results come out and they show some weakness in hardware for Oracle, IBM and HP. Some of us declare it is the effect of Cloud. It’s hard to know if it’s because people are virtualizing more or if they are adopting Cloud. VMware seems to be doing well when it comes to quarterly earnings.
There is also a sense that AWS is disrupting mainstream vendors. I asserted that as well. However, the signals in the market do not conclusively prove that. This, I believe is the beauty of disruption – while it’s happening, you get all kinds of conflicting signals.
When it comes to infrastructure software, this may well be the peak time. They are exceeding their goals, they are firing on all cylinders, and strategy is working well. The perceived threat of public cloud seems to be going slower than feared. Perhaps, it was just a Fad. Right? Wrong.
I thought about this a bit and think I have arrived at an explanation of what is happening that seems to answer my questions.
I believe what we are witnessing is two markets in motion. A maturing market that is ether at the peak or has just crossed the peak. A Second market that is emerging.
What are these markets?
Market 1: On-prem Infrastructure Software
Market 2: Public Cloud
These markets have different characteristics. I listed few of them below:
|Characteristic||On-prem Infrastructure Software||Public Cloud|
|Consumption Model||Enterprise Licensing ( discount fake subscription models here)||Subscription|
|Business Model||Enterprise model – well understood margins||Emerging, low margins|
|Speed of initial & ongoing implementation||Days/Weeks/Months||Minutes|
|Innovation||Long list of Innovations||Still newer tech|
|Rate of Innovation||Moderate||High|
|Customer Commitment||Commit to a platform long-term||Short term commitment|
|Rate of Change||Too much change is bad||Change is expected|
|Current Market Size||Large||Small|
The players in these markets are different. The discussion becomes confusing when we mix these players and start comparing them.
In On-premInfrastructure Software market, the players are VMware, RedHat, HP, MSFT, IBM, RAX ( w/OpenStack) and few others.
In Public Cloud market, the players are Amazon, Google, Microsoft and few others such as CenturyLink. (Could argue, IBM and HP has some here, but not significant enough to be of consideration).
If you look at these markets together, it looks as below:
As you can see, the players in first market race will look healthy in the short term. The players in second market race will look to be growing rapidly, but overall numbers are still small.
Assuming current trajectory continues, the first market will start stagnating and the second market will start growing rapidly. And before any of the on-prem infrastructure software players can realize it, they find themselves in an unfortunate situation of having been disrupted and become zombies. The best they can hope for is the strong players in the new market to acquire them.
One note on Microsoft – these guys seem to have made a jump to second market and are competing effectively against AWS and GCP. They also have healthy business in the first market. This is not an easy thing to do as first market forces will exert enormous pressure to innovate in it rather than investing in the second market. For ex: VMware has yielded to these pressures and all you hear from them is how tiny and irrelevant the public infrastructure market is. Microsoft on the other hand has discipline. I tip my hat to them.
Agree/Disagree? Comment or tweet away.